Browns the Diamond Store v Commission for Conciliation, Mediation and Arbitration and Others (JR1172/14) [2016] ZALCJHB 187 (13 May 2016)

REPUBLIC OF SOUTH AFRICA

THE LABOUR COURT OF SOUTH AFRICA

HELD AT JOHANNESBURG

Of interest to other judges

Case no: jR 1172/14

In the matter between:

BROWNS, THE DIAMOND STORE Applicant and COMMISSION FOR CONCILIATION, MEDIATION AND ARBITRATION - NELSPRUIT First Respondent BERNADETTE KHUMALO N.O Second Respondent KAREN KILLIAN Third Respondent

Heard: 11 May 2016

Delivered: 13 May 2016

Summary: (Review – dismissal for conflict of interest in breach of contract of employment – arbitrator finding no evidence of employee’s involvement in potential competitor’s business – finding not unreasonable – exclusion of external witness at internal enquiry who would testify on a material issue – procedurally unfair)

JUDGMENT

LAGRANGE, J

Introduction

[1] The applicant seeks to review and set aside an arbitration award in which the arbitrator found that the third respondent’s dismissal for having a conflict of interest with her employer was substantively and procedurally unfair. The application was opposed but there was no appearance for the third respondent (‘the employee’) at the review proceedings.

The award

[2] The employee, who was a sales consultant for the applicant (a jewelry store), was dismissed after being found guilty of the following charge: “Conflict of interest in that on 22 January 2013, you informed you will start store manager that your partner has purchased a manufacturing jeweller in iLanga Mall which would be in competition with the company and in breach of your contract of employment”

[3] The particular provisions of the employee’s contract, which the applicant’s witness Ms Greeff cited, when asked to explain what the applicant meant by a conflict of interest, were the following:

“The employee shall not whether directly or indirectly for reward or otherwise become engaged in any activities outside of this agreement

without prior written consent from the company.

…

The employee undertakes that she will not at any time during the currency of this agreement or thereafter utilised for her benefit or the benefit of any other person, business or entity, neither shall she divulging any confidential matter or information relating to the business affairs, processes, techniques, trade secrets, customers and/or trade connections of the company to any person save and except as may be agreed in writing by the chief executive officer of the company.

...

Any information disclosed, repealed or exchanged by the company to the employee, which includes but not limited to all intellectual property rights or trade secrets or agreements whether in writing or not which existed the time of revealing the contents of two the employee; business or financial aspects of the company.”

[4] When the same witness was asked by the Commissioner to explain how that related to the charge against the employee she cited a number provision of the contract which stated:

“The employee shall not whether directly or indirectly and for reward or otherwise become engaged in any other activities outside of this agreement, without written consent.”

The witness went on to say that she believed that the employee had engaged in some other activities of the kind referred to in this

provision because she lived with a partner who was going to open a jewelry store and that was an interest which fell within the

provision.

[5] The applicant’s counsel agreed that the only evidence of any direct involvement of the employee in the prospective computing jewelry business of her partner was a remark by the employee that the staff of the new store would have to wear uniforms, which was a requirement of the applicant’s store policy, and that was hardly confidential information. It should be mentioned that it was common cause that the employee had asked the applicant if it would construe her partner’s involvement in a competing business as a conflict of interest. It was this enquiry of the employee which prompted charges being brought against her.

[6] The essence of the arbitrator’s reasoning underpinning his decision on substantive unfairness is set out in paragraph 16 of his award:

“For a conflict of interest to exist, the applicant must have acted against the interests of the respondent. This can be in the form of divulging the respondent’s business systems or any confidential information to benefit her partner’s business. I accept Mr Hoyer’s testimony that he only intended to purchase the contents of Juweel Kuns since the respondent did not present any evidence to the contrary. If Mr Hoyer did not purchase a jeweller store, conditions did not exist where a conflict of interest could have occurred. The respondent did not provide any evidence that the applicant compromised its business in any way. The witness’s

submissions that the applicant mentioned implementing wearing the uniforms is not proof that there was in actual fact a business that had been purchased and the applicant was involved in the management of the business. I find that the respondent was afraid that conflicts of interest might arise in that the applicant might impart confidential information to her partner should he be involved in a jeweller business but no actual conflict of interest in fact arose. The respondent submitted evidence in the form of an email confirming that the applicant’s partner was in the process of renting premises in iLanga Mall. Again, this does not constitute evidence that the applicant acted in conflict with her employment contract. I therefore find the dismissal of the applicant substantively unfair.”

(sic)

[7] The arbitrator’s finding of procedural unfairness related to the fact that when the employee wished to call her partner as a witness to testify to the nature of his interest in the potential competitors business, the applicant refused to allow him to do so at the internal enquiry, apparently on the basis that his evidence would simply repeat what the employee had testified to.

[8] The arbitrator did not reinstate the Employee but awarded her eight months’ salary in compensation.

The review application

[9] The applicant’s grounds of review in its founding affidavit were framed in the most general terms and were more akin to grounds of appeal than grounds of review. In summary, they may be expressed as follows:

9.1 the arbitrator failed to make “an appropriate assessment” of the evidence;

9.2 the arbitrator failed to give credence to the evidence of the employer’s witnesses and favoured the applicants witnesses without justification;

9.3 the arbitrator misconstrued the legal position regarding the assessment of evidence, and

9.4 the arbitrator made an award which was not rationally justified.

[10] The framing of grounds of review in these terms do not set out grounds of review having regard to the labour appeal court judgements of what an applicant must establish when it seeks to set aside an arbitrator’s findings based on their handling of evidence or their reasoning and is unacceptable[1], apart from the fact that the stated grounds are seriously lacking in any of the factual specificity which an affidavit should contain. It is only in the applicant’s supplementary affidavit that it framed grounds of review which approach the standard to justify their consideration by the court, if a generous allowance is made for their deficiencies.

[11] In essence, the supplementary grounds are firstly, that the arbitrator could not on any reasonable basis have concluded the employee was not guilty of having a conflict of interests taking into account evidence that:

11.1 the undisputed evidence that the employee had told three of the employer’s witnesses that her partner had bought the competing business, and

11.2 the employee was living with her partner.

[12] Secondly, the arbitrator failed to consider that her conduct in disputing the evidence of the employee’s witnesses and suggesting that they were lying and contradicting her own version about the extent of her partner’s involvement in the jewelry business demonstrated that the trust relationship had been destroyed. Further, in deciding to award eight months’ salary as relief to the applicant despite her relatively short service, the arbitrator had been unduly influenced by the existence of a restraint of trade agreement enforceable against her.

[13] The gravamen of the applicant’s complaint concerns the arbitrator’s finding that there was no conflict of interest and the applicant’s counsel, Mr Whittington, sought to persuade me that I should have regard to the potential for a breach of the employee’s obligation to preserve the

confidentiality of the applicant’s business information given her relationship with someone engaged in the jewelry business. He referred in this regard to the case of Phillips v Fieldstone Africa (Pty) Ltd and another[2] in which an employee accepted an offer of shares in a client of his employer without advising his employer or obtaining its consent,

which the court held amounted to him succumbing to the potential conflict of interest between his duty and his self-interest. It was also suggested that the mere possibility of a conflict of interest was sufficient to warrant the employer taking action, on the strength of the authority of that case. In enumerating what might constitute a conflict of interest, the SCA held “It extends not only to actual conflicts of interest but also to those which are a real sensible possibility…”.

[14] However, the reference to a “possible conflict of interest” in Phillips’ case must be understood in the context in which it is used. It refers to a situation where a person owing a fiduciary duty to another, in this case an employer, actually does act in their own interest in circumstances in which their interest might possibly conflict with that of their principal, but does not disclose the possible conflict of interest to the person to whom the fiduciary duty is owed before embarking on such action, or does so without that person’s permission.[3] The breach of the fiduciary duty does not occur because of the mere existence of a possible conflict but how the potentially conflicted

individual acts when that situation arises.

[15] In this instance, the employee did raise the potential conflict of interest with the applicant. Importantly there was scant evidence, if any, that she actually become engaged or involved in the potentially competing business venture of her partner, or divulged any confidential information to him. The arbitrator’s finding on this issue cannot be said to be one that no reasonable arbitrator could have reached on the evidence.

[16] On the question of the exclusion of the applicant’s partner as a witness from the internal disciplinary enquiry, it was obvious that the applicant wished to call him to clarify the precise nature of his involvement in the jewelry business which was an issue of primary concern to the applicant in bringing the charges against the employee and his evidence would obviously have been important corroborative testimony in her defence. In essence the applicant’s reason for denying her the right to lead his evidence was that it would simply repeat her evidence. It is difficult to see how this amounts to anything less than saying his evidence was excluded because it would corroborate hers. Obviously, she ought to have been allowed the opportunity to call him as a witness, even if the employer might have doubted his motives for testifying in her defence. I cannot find any fault with the arbitrator’s conclusion that this was procedurally unfair.

[17] As to the arbitrator being improperly influenced by the existence of a restraint of trade agreement in awarding the amount of compensation he did, no evidence was advanced in support of this proposition. It is true that the applicant had claimed 12 months’ compensation on account of the restraint of trade provision in her contract and this might have influenced the arbitrator, but there is no evidence she attached any or unjustifiable weight to this. Given that the arbitrator also found that the dismissal was procedurally unfair and that a degree of deference is due to an arbitrator’s judgment when they exercise their discretion to award compensation, I am not satisfied that grounds for interfering with the exercise of her discretion have been advanced in this instance.

Order

[18] In light of the above, the review application is dismissed with costs.

_______________________

Lagrange J

Judge of the Labour Court of South Africa

APPEARANCES

APPLICANT:

D Wittington instructed by Fluxmans Inc.

THIRD RESPONDENT:

No Appearance

[1] See Herholdt v Nedbank Ltd (Congress of SA Trade Unions as Amicus Curiae) (2013) 34 ILJ 2795 (SCA), Gold Fields Mining SA (Pty) Ltd (Kloof Gold Mine) v Commission for Conciliation, Mediation & Arbitration & others (2014) 35 ILJ 943 (LAC) and Head of the Department of Education v Mofokeng and others [2015] 1 BLLR 50 (LAC).

[2] 2004(3) SA 459

[3] See, for example, the judgment of Boardman and another v Phipps [1966] UKHL 2; [1966] 3 All ER 721 cited in the Philips case in support of the principle.